The new legislation is the first time in a decade that lawmakers from both sides of the aisle have come together to put forth serious climate policy. And like the MARKET CHOICE Act, it uses a fee to reduce pollution across the economy and includes “environmental integrity mechanisms” (EIMs) — provisions that tie a carbon fee to clear, measurable pollution reduction goals and keep us on track to meet those goals. EIMs are still a relatively new concept on the climate policy scene, but leading thinkers have begun to pay them significantly more attention, and it is clear they are emerging as a critical component of any serious carbon fee proposal: and with good reason.

A carbon fee – which sets a price per unit of pollution – prompts the economy to respond by providing powerful incentives to reduce that pollution, but it cannot guarantee the environmental result. While energy and economic modeling tools can provide critical insight into possible or likely outcomes, they cannot provide certainty over the magnitude of the impact. That’s why it is critical to include EIMs designed to provide greater assurances that a fee will deliver on its pollution reduction potential. Read More »

The Trump Administration is attempting to justify the rollback of crucial environmental and health protections by vastly undervaluing the costs of climate change.

The latest safeguards under attack are the Clean Power Plan, the nation’s first-ever limits on carbon pollution from existing power plants, and the Bureau of Land Management’s vital standards to reduce wasted natural gas from oil and gas facilities on public and tribal lands. They would have health, environmental, and economic benefits worth an estimated billions of dollars annually. But you wouldn’t know it from reading the Administration’s recently revised documents – because of a series of deceptive accounting tricks, including efforts aimed at obscuring the benefits of reducing carbon pollution.

The Trump Administration has used discredited methods to eviscerate the social cost of carbon — an estimate of the costs that carbon pollution inflicts on the public, represented as the dollar value of the total damages from emitting one ton of carbon dioxide into the earth’s atmosphere.

The social cost of carbon is a tool that helps ensure that policymakers consider the health, environmental and economic benefits of avoiding extreme weather, rising temperatures and intensifying smog when they make decisions that affect climate pollution.

Climate change harms businesses, families, governments and taxpayers through rising health care costs, destruction of property, increased food prices and more — so it’s common sense that we should properly account for the value of avoiding these harmful outcomes. But the Trump Administration has systematically undermined and attacked the well-established science of climate change – including the social cost of carbon, which has had a target on its back for a while now.

The most up-to-date estimates of the social costs of carbon were developed by an Interagency Working Group (IWG) of experts from a dozen federal agencies. They were developed through a transparent and rigorous process based on the latest peer-reviewed science and economics, and with input from the public and the National Academy of Sciences.

But in March, President Trump cast aside the results of this thorough and consultative process. He issued an executive order aimed at discrediting the IWG estimates, withdrawing them as government policy, and directing federal agencies to pick their own metric.

The executive order leaves federal agencies to fend for themselves without specific guidance, opens the door to extensive legal challenges, and effectively sets up agencies to cook the books to serve the Administration’s goals.

That’s exactly what EPA Administrator Scott Pruitt and Department of the Interior Secretary Ryan Zinke just did – releasing benefit-cost analyses that massively undervalue the costs of carbon pollution, radicallyreducing the estimates by up to 97 percent.

The Trump Administration would have us believe that the costs of carbon pollution are near zero. The Administration’s new estimates are only a couple dollars per ton of carbon dioxide – about as much as a cup of coffee or a bus ticket.

Even the IWG estimates – roughly $50 per ton of carbon dioxide based on year 2020 emissions – are almost certainly a conservative lower bound since they do not yet reflect many different types of climate impacts.

A closer look at the Administration’s deceptive math

There are two major flaws in the Administration’s drastically reduced estimates, both of which fly in the face of established science and economic principles in service of obscuring the very real benefits of climate action.

First, the reduced estimates ignore that carbon emissions are a global pollutant, so they omit important categories of climate change impacts on the United States.

Second, they shortchange the harm to our children and future generations from climate change.

The so-called “domestic-only” estimate

Since the impacts of carbon pollution are felt globally regardless of where the emissions come from, leading researchers and the IWG have appropriately focused on accounting for that full global impact.

In contrast, the Administration’s revised estimates claim to consider “domestic-only” impacts to the United States. But that title is a misnomer – the Administration’s flawed approach ignores important categories of impacts that affect the American public. Climate impacts beyond our borders have costly repercussions for U.S. citizens in the form of changing global migration patterns, economic and political destabilization, and other “spillover” effects.

The National Academy of Sciences specifically rejected the approach the Administration is taking in a report released earlier this year, concluding that:

[C]limate damages to the United States cannot be accurately characterized without accounting for consequences outside U.S. borders.

[The] United States benefits tremendously if other countries set policy based on global rather than local effects.

They also point out that the use of a global estimate can encourage reciprocal climate action elsewhere. For instance, the Canadian government incorporated the U.S. IWG value in its own policy analysis.

Undervaluing the impacts on children and future generations

The Administration’s estimates also use a sharply lower value for the benefits that today’s carbon reductions provide to children and future generations. Again, this is in direct conflict with the weight of expert opinion that supports valuing these impacts even more than we did before the Trump Administration.

The Administration’s estimates “discount” future impacts at 7 percent – a rate significantly higher than the 3 percent central rate of the IWG, and one that is wholly unsupported by the economics literature when it comes to the long-lived intergenerational effects of carbon pollution.

Practically speaking, the use of such a high discount rate means that the effects of our actions on future generations are largely unaccounted for in the new analysis.

In other words, the Administration’s estimates reveal just how little they value protecting American children and generations to come.

The social cost of carbon has profound influence on our policy process and embodies the very real costs of climate change that communities around the country are already feeling.

The Administration’s distortion of these values is illustrative of a frequent strategy of theirs – twisting the facts to validate their desired outcome, and in the process sowing doubt around the overwhelming scientific consensus on climate change.

Unfortunately, while the math the Administration is using is warped, the costs of climate change are still very real – and the American public is footing the bill.

Of all the falsehoods, President Trump’s insistence that compliance with the Paris accord would cost Americans millions of lost jobs and trillions in lowered Gross Domestic Product was particularly brazen, deceptive, and absurd. These statements are part of a disturbing pattern, the latest in a calculated campaign to deceive the public about the economics of reducing climate pollution.

In the past five years alone, NERA has released a number of dubious studies funded by fossil fuel interests about a range of environmental safeguards that protect the public from dangerous pollution like mercury, smog, and particulate matter – all of which cause serious health impacts, especially in the elderly, children, and the most vulnerable. NERA’s work has been debunked over and over. Experts from MIT and NYU said NERA’s cost estimates from a 2014 study on EPA’s ozone standards were “fraudulent” and calculated in “an insane way.” NERA’s 2015 estimates of the impacts of the Clean Power Plan, which are frequently quoted by President Trump’s EPA Administrator Scott Pruitt and others, have also been rebutted due to unrealistic and pessimistic assumptions.

The study does not account for the enormous costs of climate pollution

In his speech about the Paris agreement, President Trump crossed a line that made even NERA so uncomfortable that it released a statement emphasizing that its results were mischaracterized and that the study “was not a cost-benefit analysis of the Paris agreement, nor does it purport to be one.”

The most important point embedded in this statement is that the study does not account for the enormous benefits of reducing the carbon pollution causing climate change. Climate change causes devastating impacts including extreme weather events like flooding and deadly storms, the spread of disease, sea level rise, increased food insecurity, and other disasters. These impacts can cost businesses, families, governments and taxpayers hundreds of billions of dollars through rising health care costs, destruction of property, increased food prices, and more. The costs of this pollution are massive, and communities all around the U.S. are already feeling the impacts – yet the President and his Administration continue to disregard this reality as well as basic scientific and economic facts.

Cherry-picking an impractical and imaginary pathway to emission reductions

The statistics the President used were picked from a specific scenario in the study that outlined an impractical and imaginary pathway to meet our 2025 targets designed to be needlessly expensive, as experts at the World Resources Institute and the Natural Resources Defense Council have noted. The study’s “core” scenario assumes sector by sector emission reduction targets (which do not exist as part of the Paris accord) that result in the most aggressive level of mitigation being required from the sectors where it is most expensive. This includes an almost 40 percent reduction in industrial sector emissions – a disproportionate level not envisioned in any current policy proposal – which results in heavily exaggerated costs.

An expert at the independent think tank Resources for the Future, Marc Hafstead, pointed out:

The NERA study grossly overstates the changes in output and jobs in heavy industry.

It’s not something you can cite in a presidential speech with a straight face … It’s being used as a talking point taken out of context.

The NERA analysis also includes a scenario that illustrates what experts have known for decades – that a smarter and more cost-effective route to achieving deep emission reductions is a flexible, economy-wide program that prices carbon and allows the market to take advantage of the most cost-effective reductions across sectors. Even NERA’s analysis shows that this type of program would result in significantly lower costs than their “core” scenario. Not surprisingly, that analysis is buried in the depths of the report, and has been entirely ignored by the Chamber of Commerce and ACCF as well as President Trump.

Finally, the NERA study assumes that businesses would not innovate to keep costs down in the face of new regulations – employing pessimistic assumptions that ignore the transformational changes already moving us towards the expansion of lower carbon energy. Those assumptions rely on overly-conservative projections for renewable energy costs, which have been rapidly declining. They also underestimate the potential for reductions from low-cost efficiency improvements, and assume only minimal technological improvements in the coming years.

The truth is that the clean energy revolution is the economic engine of the future. President Trump’s announcement that he will withdraw the U.S. from the Paris accord cedes leadership and enormous investment opportunities to Europe, China, and the rest of the world. His faulty math will not change these facts.

It’s reported that the Trump Administration is poised to continue its barrage of attacks on some of our most vital health and environmental protections, following last week’s assault on broadly supported fuel economy and greenhouse gas safeguards for cars and light trucks. Here’s one attack that they may try to sneak under the radar—a move that would undercut common sense climate protection all across the federal government: directing federal agencies to abandon the use of social cost of carbon estimates in their evaluation of new policy.

The social cost of carbon is a measure of the economic harm from the impacts of climate change. Specifically, it’s the dollar value of the total damages from emitting one ton of carbon dioxide into the atmosphere. Weakening or eliminating the use of the social cost of carbon would result in skewed and biased policy-making that ignores the benefits of crucial safeguards and stacks the deck against actions to protect communities from the mounting costs of climate change.

The devastating impacts of climate change on health and the environment – such as extreme weather events, the spread of disease, sea level rise, and increased food insecurity – can cost American businesses, families, governments and taxpayers hundreds of billions of dollars through rising health care costs, destruction of property, increased food prices, and more. Many of these impacts are already being felt by communities across the country, as the government’s leading scientific agencies have found.

When the federal government develops policy affecting the carbon pollution causing climate change, it is both reasonable and essential that it takes these costs into account. The social cost of carbon is a tool that allows policy-makers to do just that.

Currently, the federal government uses a social cost of carbon estimate—roughly $40 per ton of carbon pollution—that was developed through a transparent and rigorous interagency process, relied on the latest peer-reviewed science and economics available, and allowed for repeated public comment as well as input from the National Academy of Sciences.

But that may not last much longer. As we’ve seen, the Trump Administration is waging war against an array of our most crucial health and environmental protections, ignoring the urgent threat of climate change while prioritizing fossil fuel interests. President Trump’s new Administrator of the Environmental Protection Agency, Scott Pruitt, denies that carbon pollution is a primary contributor to climate change, and built his political career by suing EPA 14 times as Oklahoma Attorney General to block protections from mercury, arsenic and smog pollution, hand in hand with the worst elements of the fossil fuel industry. Meanwhile the Administration is proposing devastating cuts to the budgets for EPA and climate research, and is moving towards revoking the Clean Power Plan, America’s first-ever nationwide limits on carbon pollution from power plants.

All of this points to a clear disregard for basic science, economic principles, and our nation’s clean air laws. Eliminating or weakening the social cost of carbon is another pernicious tactic by the Administration to undermine the development of crucial climate safeguards – by erroneously making it appear as though reducing carbon pollution has little or no benefit to society and the economy. Even the current figure is very likely a conservative lower bound since it does not yet include all of the widely recognized and accepted impacts of climate change.

The details of the upcoming attack are still unclear. It’s possible that the Administration may end use of the uniform social cost of carbon estimate at the federal level—despite its rigorous basis and judicial precedent. Other indications suggest that the Administration may choose to artificially and arbitrarily discount the costs of climate change for the health and economic well-being of our kids, grandkids, and future generations—ignoring the growing consensus among economists that supports valuing these impacts more, as does a recent report from the Council of Economic Advisors. Or the Administration may decide to disregard the fact that our greenhouse gas pollution has harmful impacts outside U.S. borders that can have costly repercussions for Americans.

Throwing out the social cost of carbon may play well with President Trump’s supporters in the fossil fuel industry. But the importance and appropriateness of accounting for these costs is a matter of both economics and law. We also know that nearly two thirds of Americans are concerned about climate change. Undermining limits on pollution—protections that are rooted in rigorous scientific research, reflecting long-standing bipartisan economic principles—will ultimately harm the health and environmental safety of all Americans, including Trump’s supporters.

How can we ensure that a carbon tax delivers on its pollution reduction potential? An innovative, new idea could provide greater certainty over the environmental outcome.

As momentum intensifies around the world for action to fight climate change, the United States is emerging as a leader in the new low-carbon economy. But if we are going to reduce climate pollution at the pace and scale required — cutting emissions 26-28% below 2005 levels by 2025 and at least 83% by 2050, on a path to zero net emissions —we need to roll up our sleeves on a new generation of ambitious climate policies that harness the power of the economy and American innovation. An emerging idea could be a game-changer for the prospects of a carbon tax to help tackle climate pollution.

Economics 101 teaches us that market-based policies, including cap-and-trade programs as well as carbon taxes, are the most cost-effective and economically efficient means of achieving results. Both put a price on carbon emissions to reduce dangerous pollution. Cap-and-trade programs place a “cap” on the total quantityof allowable emissions, directly limiting pollution and ensuring a specific environmental result, while allowing prices to fluctuate as pollution permits are traded. The “guarantee” that the cap provides is a primary reason this tool has been favored by EDF and other stakeholder s focused on environmental performance. That U.S. targets are based on quantities of pollution reductions also speaks to the need for policy solutions tied to these pollution limits.

In comparison, a carbon tax sets the priceper unit of pollution, allowing emissions to respond to the changes in behavior this price encourages. The problem, from an environmental standpoint, is that a carbon tax lacks an explicit connection to a desired pollution reduction target — and therefore provides no assurance that the required reductions will actually be achieved. We know that a carbon tax will impact emissions, but even the most robust modeling cannot provide certainty over the magnitude of that impact. Furthermore, fundamental factors like energy or economic market dynamics can change over time, affecting the performance of a tax. Because greenhouse gas pollution accumulates in the atmosphere over time, even being slightly off the desired path over several decades can produce significant consequences for cumulative emissions, and thus climate damages.

A new approach: Environmental Integrity Mechanisms (EIMs)

Two recently-released papers by the Nicholas Institute at Duke University and Resources for the Future (RFF) directly address this key concern with a carbon tax —and suggest an innovative path forward. They illustrate how a suite of provisions – we’ll call them “Environmental Integrity Mechanisms” or “EIMs,” though each paper uses different terminology – could provide greater levels of certainty regarding the emissions outcome, by allowing for adjustment of the carbon tax regime over time to course-correct and keep us on track for meeting our targets.

EIMs – if carefully designed – can play an important role in connecting a carbon tax to its performance in reducing pollution. They are a type of built-in insurance mechanism: they may never be triggered if the initial price path achieves its projected impact, but provide a back-up plan in case it does not.

These mechanisms are analogous to well-studied “cost containment” provisions in cap-and-trade that are designed to provide greater certainty over prices. Cost containment provisions are included in several successful cap-and-trade programs around the world. For example, California’s cap-and-trade program includes a price collar that sets a floor as well as a ceiling that triggers the release of a reserve of allowances.

EIMs are a parallel effort to introduce greater emissions certainty into a carbon tax system. With the recent publication of these two papers, EIMS are beginning to receive well-deserved greater attention. These provisions help bridge the gap between caps and taxes, merging the strengths of each to create powerful hybrid programs.

How EIMs might work

Let’s take a closer look at how these “EIMs” could work.

• First, the initial tax level and/or growth rate could be adjusted depending on performance against an emissions trajectory or carbon budget benchmark. This could occur either automatically via a simple formula built into the legislation, by Congressional intervention at a later date based on expert recommendations, or by delegation of authority to a federal or independent agency or group of agencies.

There are clear advantages to including an automatic adjustment in the legislation. This avoids having to go back to a sluggish Congress to act; and there is no guarantee that Congress would make appropriate adjustments. Moreover, Congress is likely to be loath to relinquish its tax-setting authority to an executive agency — and such delegation could even face legal challenges. Delegating tax-setting authority to an executive agency could also introduce additional political uncertainty in rate setting.

In designing such an automatic adjustment, policy makers will need to consider the type, frequency and size of these adjustments, as well as how they are triggered. The RFF paper in particular discusses some of the resulting trade-offs. For example, an automatic adjustment will reduce the price certainty that many view as the core benefit of a tax. On the other hand, by explicitly and transparently specifying the adjustments that would occur under certain conditions, a high degree of price predictability can still be maintained – with the added benefit of increased emissions certainty.

• Second, the Nicholas Institute brief discusses regulatory tools that could be employed if emission goals were not met –including existing opportunities under the Clean Air Act, or even new authority. The authors point out that relative to automatic adjustment mechanisms, regulatory options are more difficult to “fine-tune.” Nevertheless, they could provide a powerful safeguard if alternatives fail.

• Finally, as the Nicholas Institute brief discusses, a portion of tax revenue could be used to fund additional reductions if performance goals were not being met. This approach could tap into cost-effective reductions in sectors where the carbon tax might be more challenging to implement (e.g. forestry or agriculture). The revenue could also be used to secure greater reductions from sectors covered by the tax — for example, by funding investments in energy efficiency. In a neat twist, the additional revenue needed to fund these emissions reductions would be available when emissions were higher than expected — that is, precisely when more mitigation was needed.

EDF’s take

Our goal is to reduce the amount of carbon pollution we put into the atmosphere in as cost-effective and efficient a manner as possible. This means putting a limit and a price on carbon pollution.

Even at this preliminary stage in the exploration of EIM design, one takeaway is clear: all carbon tax proposals should include an EIM with an automatic adjustment designed to meet the desired emissions path and associated carbon budget.

More work is needed to develop and evaluate the range and design of EIMs. And while a cap is still the most sure-fire means of guaranteeing an emissions outcome, this growing consideration by economists and policy experts opens a new path for the potential viability of carbon taxes as a pollution reduction tool in the United States.

The bottom line is this: The fundamental test of any climate policy is environmental integrity. For a carbon tax, that means an EIM.

This post was co-authored with Martha Roberts. It originally appeared on EDF’s Market Forces)

If someone was tallying up all the benefits of energy efficiency programs, you’d want them to include reducing climate pollution, right? That’s just common sense.

Thankfully, that’s what our government does when it designs energy efficiency programs—as well as other policies that impact greenhouse gas emissions. And just this month, this approach got an important seal of approval: For the first time, a federal court upheld using the social cost of carbon to inform vital protections against the harmful impacts of climate change.

So what is the social cost of carbon and why does it matter? It’s a crucial part of the development of climate safeguards and essential to our understanding of the full costs of climate pollution. We know that climate change is a clear and present danger now and for future generations—one that will result in enormous costs to our economy, human health and the environment. And yet, these “social” costs are not accounted for in our markets, and therefore in decision making. It is a classic Economics 101 market failure. Every ton of carbon dioxide pollution that is emitted when we burn fossil fuels to light our homes or drive our cars has a cost associated with it, a hidden one that is additional to what we pay on our utility bills or at the gas pump. These costs affect us all – and future generations – and are a result of the negative impacts of climate change. If we don’t recognize these hidden costs—we aren’t properly protecting ourselves against the dangers of climate pollution.

The social cost of carbon (or SCC) is an estimate of the total economic harm associated with emitting one additional ton of carbon dioxide pollution into the atmosphere. To reach the current estimate, several federal agencies came together to determine the range and central price point – roughly $40 per ton – through a transparent and rigorous interagency process that was based on the latest peer-reviewed science and economics available, and which allowed for repeated public comments.

It’s critical that we protect against the damages and costs caused by climate pollution. So it’s a no-brainer that when considering the costs and benefits of climate safeguards, we must take into account all benefits and costs – and that means including the social cost of carbon.

In their court opinion, the Federal Court of Appeals for the Seventh Circuit agreed wholeheartedly. Harvard Law ProfessorCass Sunsteinnoted that their decision “upholds a foundation” of “countless” climate protections. In particular, their opinion made two important findings:

First, the court affirmed that the DOE was correct to include a value for the social cost of carbon in its analysis. The judges concluded that “[w]e have no doubt” that Congress intended for DOE to have authority to consider the social cost of carbon. Importantly, this conclusion reinforces the appropriateness of including the SCC in future carbon-related rule-makings.

Second, the court upheld key choices about how the SCC estimate was calculated. The court agreed that DOE properly considered all impacts of climate change, even those years from now, or outside our borders. These choices, the court concluded, were reasonable and appropriate given the nature of the climate crisis we face.

DOE itself acknowledged “limitations in the SCC estimates.” We couldn’t agree more. As new and better information about the impacts of climate change becomes available and as our ability to translate this science into economic impacts improves, regulators must update thecurrent social cost of carbon estimate. There is still much we do not know about the full magnitude of climate impacts and much that cannot be quantified (as is true of all economic impact analysis) – which means that SCC estimates are likely far lower than the true impact of climate change. But as the Seventh Circuit recognized, their inclusion is a vital step in the right direction for sensible policy-making.

This decision already has positive implications more broadly—in particular, for the Clean Power Plan, our nation’s historic program to reduce carbon pollution from power plants. Just last week, EPA submitted a letter in the Clean Power Planlitigationnoting that the Seventh Circuit’s decision further demonstrates the error of challenges to the treatment of costs and benefits in the Clean Power Plan rulemaking. It’s just another affirmation of therock-solid legal and technical foundationfor the Clean Power Plan.